ACCA Performance Management (F5) Certification Practice Exam

What is the aim of throughput accounting?

1. To minimize all operational costs

2. To maximize profitability while reducing operating expenses and inventory

3. To increase the number of production units

4. To achieve maximum sales revenue

The correct answer is: To maximize profitability while reducing operating expenses and inventory

Throughput accounting primarily focuses on maximizing the overall profitability of an organization, emphasizing the importance of increasing throughput—the rate at which the system generates money through sales. The key concept in throughput accounting is that profitability should be maximized by considering the relationship between sales, variable costs, and inventory. By aiming to maximize profitability while minimizing operating expenses and inventory levels, throughput accounting ensures that the organization operates efficiently. This approach recognizes that holding excessive inventory can tie up resources and increase costs without directly contributing to profit. Additionally, throughput accounting encourages decisions that enhance production flow and reduce bottlenecks, allowing for more effective use of capacity. This focus on generating revenue quickly and efficiently underscores the goal of maximizing profits rather than merely increasing sales or production levels without strategic consideration of costs. In contrast, the other choices focus on broader aspects of operations, such as minimizing costs or increasing sales revenue, without tying these actions directly to the profitability perspective that throughput accounting emphasizes. The objective to minimize all operational costs may lead to drastic cost-cutting measures that don’t necessarily support the overall profit maximization goal. Similarly, increasing the number of production units or achieving maximum sales revenue does not guarantee that those activities will lead to higher profitability if they are not aligned with the management of operating expenses